The city of Karbala observed the holiday of Arbain this weekend. It marks the end of a 40-day period of mourning for the martyrdom of Imam Hussein 1,350 years ago, in the power struggle that created Islam's Sunni-Shiite divide.

Hundreds of thousands of pilgrims celebrated by marching on foot to the city, praying at Hussein's tomb, ritually whipping themselves, and recreating the story of his defeat and death.

But most telling in Karbala this weekend was who was not in charge: the militia of radical cleric Moqatad al-Sadr. Instead, two moderate, cooperating Shiite militias set up layered cordons throughout the city.

While their taking control in Karbala represents a small victory over Sadr, it also serves to underscore the growing political and strategic influence of Iraq's Shiite clerics, a group whose influence US strategists had hoped to limit.

In fact, security for the flocks of pilgrims was provided neither by the US-controlled Iraqi National Police, who fled the city when Sadr's men showed up last week, nor any other organs of the nascent Iraqi government or US occupation authority.

The country is still reeling from two weeks of fighting that has left more than 400 Iraqis dead and killed around 40 coalition soldiers. And the US is desperate for Iraqis who can serve as peacemakers and shore up the crumbling legitimacy of the Governing Council, the US-appointed 25-member body expected to form the core of a transitional government when the US returns sovereignty to Iraq on June 30.

If a dramatic improvement in security isn't made in the weeks to come, many analysts expect the US will be forced to make key concessions to Iraq's Shiites. Cracks are also emerging in the Governing Council, brought on by the strain of civilian casualties taken in both Shiite areas and in the Sunni triangle town of Fallujah.

Council members are seeking to distance themselves from the US and over the weekend the council called for the US to abandon a policy of "collective punishment" in Fallujah, a term Arab states usually use to describe Israeli actions against Palestinian communities. On Sunday, the US called a temporary halt to hostilities there to allow council members to negotiate with the insurgents and to allow the evacuation of the wounded.

At the end of last week, US Secretary of State Colin Powell told Congress that enlarging the existing council was "the leading horse" for the transitional government, but that came before complaints from council members over the weekend.

Iyad Allawi, the head of the council's security committee, stepped down from that post over the weekend, complaining the Americans hadn't given up enough authority over security affairs. Council member Abdel Karim Mahud al-Mahamadawi said he was "suspending" his participation in the council in protest of the recent violence, and Iraq's interim Human Rights Minister Abdel Basit Turki quit for the same reason.

"The whole US idea of having a transitional government or a transitional constitution could prove to be completely untenable,'' says Gailan Ramiz, a US-educated professor of political science at Baghdad University. "Unless improvements come fast, there may be no avoiding going to a general election in order to create a legitimate government that could fill the vacuum of political power and call on the people to maintain social discipline."

AFTER a week of fighting between followers of Sadr militants, on the one side, and Bulgarian and Polish troops on the other, milder Shiite militias pushed Sadr's militia either out of the city or deeply underground. The vacuum has been filled by the Badr Brigades, controlled by the Supreme Council for the Islamic Revolution in Iraq; and militia close to Iraq's establishment Shiite hierarchy who sometimes call themselves the Helpers of Sistani, after Grand Ayatollah Ali Al-Sistani, a moderate and Iraq's most widely respected cleric.

US soldiers have no presence in the town whatsoever. At the main security office in the shrine of Hussein, an official warns foreigners that they shouldn't have come to the town. "It's lawless out there."

Unlike Sadr's men, these militias aren't likely to make a grab for power by force. But their sponsors do have political demands - and are increasingly weary of the US occupation. Grand Ayatollah Sistani has repeatedly complained that Iraq should have elections much sooner than the current US timetable, scheduled for January 2005. Leaders of SCIRI also say they would like big changes in the US transition plan. They say they worry that Iraq's Shiites won't be granted sufficient influence in the transitional government.

"The Sadr people were troublemakers so we took care of them here in Karbala,'' says a young militiaman who identifies himself as a member of the Ansar Al-Sistani. "But we're most angry at the Americans - there's no safety in Iraq anymore."

Sadr is a young cleric who has focused on poor urban Shiites. He called on Sunday for more attacks on coalition forces.

Both SCIRI and aides to Sistani are trying to broker a compromise to the Sadr problem. The US has been uncompromising in language that promises to crush the cleric and his forces.

"There is no place within the democratic system of Iraq for a renegade militia that chooses to intimidate and terrorize the people while seeking to control the basic institutions of the country with a violent power play,'' Lt. Gen. Ricardo Sanchez, commander of coalition ground forces, said over the weekend.